Interim Results - Pre-tax Profit Up 56%

Sage Group PLC 8 December 1999 SAGE PROFITS UP 56% TO £74.3M FOR YEAR TO 30 SEPTEMBER 1999 The Sage Group plc ('Sage'), the leading supplier of accounting software and related products for personal computers, announces its unaudited results for the year ended 30 September 1999. KEY POINTS: + Turnover increased by 60% to £307.0m (1998: £191.5m) + Operating profits rose by 57% to £79.9m (1998: £50.8m before exceptional profits of £1.2m) + Pre-tax profits up 56% to £74.3m (1998: £47.6m) + Underlying organic growth of 26% in turnover and 46% in operating profit + Earnings per share up 46% to 42.24p (1998: 28.85p) + Dividends for the year raised 10% to 3.51p per share net (1998: 3.19p) + Operating cash flows improved to £110.9m (1998: £54.2m) + Support revenue reaches £100.5m, an increase of 74% + Geographical analysis: 1999 1998 £m Turnover Operating Turnover Operating profit profit UK 79.7 38.0 59.8 29.2 France 73.5 19.8 53.1 10.4 Germany 20.7 (1.8) 25.7 0.8 USA 87.5 21.0 49.8 10.2 261.4 77.0 188.4 50.6 Discontinued - - 3.1 0.2 Acquisitions - UK 19.5 1.5 - - - USA 26.1 1.4 - - 307.0 79.9 191.5 50.8 Chairman, Michael Jackson commented: 'With a significant and growing number of businesses using our products and services we believe we are well positioned to build on our achievements to date and we look forward with anticipation to the challenges of the new millennium. The new year has started strongly and the Board remains confident about the prospects for the full year'. ENQUIRIES: Paul Walker, Chief Executive, or Aidan Hughes, Finance Director, on 0207 831 3113 today and on 0191 225 3000 thereafter, or Giles Sanderson or Jon Earl of Financial Dynamics. ISSUED BY: Financial Dynamics, Holborn Gate, 26 Southampton Buildings, London, WC2A 1PB. Telephone: 0207 831 3113. INTRODUCTION We are pleased to be reporting another year of substantial growth for Sage, with turnover up 60%, operating profits up 57%, pre-tax profit up 56% and earnings per share up 46%. Allowing for the impact of acquisitions in the current and previous financial years, our continuing businesses showed underlying organic growth of 26% in turnover and 43% in operating profit. We have also seen a valuable contribution from the acquisitions we made this year. The purchases of Peachtree Software, Inc. in the US, and Tetra plc in the UK were important strategic developments. We have also consolidated our market leading position in Europe by making further acquisitions in the UK and Portugal during the year and Switzerland since the year end. RESULTS, DIVIDENDS AND FINANCE In the year ended 30 September 1999, we increased turnover by 60% to £307.0m (1998: £191.5m). Our operating profits rose by 57% to £79.9m (1998: £50.8m) and pre-tax profits improved by 56% to £74.3m (1998: £47.6m). Earnings per share increased by 46% to 42.24p (1998: 28.85p). Sage's performance in the second half of the year was strong and was boosted by a full six months of contribution from both Peachtree and Tetra. We had 648,000 support contracts at the end of the year (1998: 370,000) which generated over £100.5m (1998: £57.9m) of revenue. We are proposing a final dividend of 2.33p (net) per share (1998: 2.12p) making a total of 3.51p (net) per share (1998: 3.19p) for the year - an increase of 10%. Subject to shareholders' approval, the final dividend will be paid on 1 March 2000 to shareholders on the register at the close of business on 4 February 2000. Cash generation continues to be strong across the Group with £110.9m of operating cash flow generated in the year. After interest, tax and dividends this gave free cashflow of £83.2m. Acquisitions cost £184.2m satisfied by £143.6m cash and £40.6m by an issue of 1.9m new ordinary shares. The funding of the £143.6m cash element came from a new £40.0m five-year term loan, existing cash resources and an issue of 3.5m new shares generating £65.9m after costs. Peachtree, acquired on 26 February 1999 and Tetra on 7 April 1999 cost £90.5m and £81.1m respectively. The businesses held £8.6m of cash upon acquisition. Capital expenditure and other movements during the year totalled £10.4m resulting in net debt at 30 September 1999 of £58.3m (1998: £62.0m). OPERATIONAL REVIEW Our business in the UK has shown robust growth this year. Turnover at Sage Software Limited was up by 33%, with 90,000 more registered users of our products. We now have 187,000 support contracts in the UK, up 22% on last year. This, together with a strong performance from upgrades, has helped sustain operating profit margins. We also made two acquisitions this year in the UK. First, we purchased Tetra plc, satisfying demand from our dealers and our customers for a more sophisticated product line. With Tetra we can now access an expanded value added reseller channel and have the appropriate products with which to extend our market presence both in the UK and internationally. Second, we acquired Taxsoft Limited which enables us to build ever closer links within the professional accountants' community. As well as being valuable customers, accountants have a high degree of influence over their own clients' choice of products. The French businesses have delivered an outstanding performance this year. Turnover has increased 38% to £73.5m, with operating profit increasing by 91% to £19.8m. We have seen significant all round growth including a substantial increase in support contracts which now total 199,000. We have continued to improve both our marketing and channel management during the year and this has enabled us to benefit from the demand for replacement systems as a result of Y2K and the introduction of the Euro. In Germany, with the demise of the old 'free licence' business model, we are now able to apply the same principles of operation that we use in the rest of the Group. The channel is more focused and customer service levels are improving and we are well placed to capitalise on opportunities in this market. In the US, we have seen substantial growth at Sage Software, Inc., with turnover up by 32% to £64.9m on an annualised basis. Operating profits for the year were £16.1m, an improvement of 90% on last year, with a significant contribution coming from a 38% increase in support contracts to 38,000. With the acquisition of Peachtree, we have gained a strategic position in the US retail market. Peachtree now has 136,000 support contracts including 96,000 under its tax update programme. We have seen improvements in the level of customer service since the acquisition and have a co-ordinated marketing approach with Sage Software Inc. The time tracking and recording division, based in Dallas, achieved 27% growth in the year demonstrating its leading position in this market. E-COMMERCE The Internet continues to be fundamental to the development of our businesses around the world. Our approach is based, as ever, on our customers' needs and aspirations. Quite simply, our aim is to provide our customers with all the tools they need to get their businesses up and running on the web. In the short term this means helping them to get connected, and then to encourage them to use the web proactively. We have created at www.sage.com a web site specifically designed to meet the needs of small and medium-sized businesses. At www.sage.com we have on offer a broad range of relevant on- line products, services and content, some our own and some from third parties, which will enable our customers to make the most of the web. In addition we have developed a simple web site creation tool so that our customers can build their own web sites for free and in less than 30 minutes. In just over six months nearly 2,000 customers have started to build or have built their own web sites, and demand remains strong. Advanced, and chargeable, versions of our web site creation tool which will enable customers to build their own web shops will be made available in January 2000. Investment continues to be made in other ASP (Application Services Provider) services including ASP versions of our payroll and accounting software products. The first of these will be brought to market by Peachtree in the Spring of 2000. We are also investing in all of our existing PC based software products to make them web-enabled. Our vision is that customers should be able to access the web and all the benefits it can bring directly from our PC software. We are embedding more and more web-based features in to our PC software products such as credit checking, address verification and parcel tracking, and this process will continue throughout 2000. As a result of this activity we believe that our range of PC accounting and payroll products will remain highly attractive to new customers. Unlike many others in the Internet world, we see the Value Added Reseller community as being central to our success. Small businesses need a great deal of support and expert advice to make the most of the web and, very importantly, need this resource to be close at hand. Our reseller community, which now numbers more than 15,000 around the world, is perfectly placed to provide this local service and to give our 2 million customers the help they need to achieve their own Internet ambitions. In November 1999 we launched an accreditation scheme in the UK for our resellers to become E-Business Centres and within one month more than 500 had signed up. This programme is now being rolled out world-wide. We are convinced that our resellers will be a pivotal resource as we set out to realise our ambitions to encourage our customers to start down the path to e-commerce. Partnership is important in the connected world. Alliances improve our global reach and make our projects cost-effective. Across the world, we have many collaborative agreements with leading players, including IBM and Microsoft. We believe that our close understanding of the needs of our customers, combined with the strength of the Sage brand, our reputation for providing support of the highest quality and the strength and breadth of our reseller community, provides us with an ideal platform from which to build our business in the e-commerce world. PEOPLE We recognise the need to make the best use of knowledge throughout our organisation. This year, we have taken steps to strengthen our central team, introducing people with critical knowledge and best practice methods from our sites throughout the Group. We have made significant appointments within our business development team, and further senior appointments to ensure high quality leadership for our ASP initiatives. BOARD APPOINTMENT Guy Berruyer, who currently is the Chief Executive of our French businesses, has been invited to join the Board of The Sage Group plc. He will take up this appointment on 1 January 2000, becoming responsible for all our operations in mainland Europe. Guy's extensive international business experience will help Sage make further progress on the continent. OUTLOOK With a significant and growing number of businesses using our product and services we believe we are well positioned to build on our achievements to date and we look forward with anticipation to the challenges of the new millennium. The new year has started strongly and the Board remains confident about the prospects for the full year. Michael Jackson Paul Walker Chairman Chief Executive UNAUDITIED CONSOLIDATED PROFIT AND LOSS ACCOUNT For the year ended 30 September 1999 Continuing Operations 1999 1998 Total Total Acquisitions £'000 £'000 £'000 £'000 Turnover 261,446 45,595 307,041 191,547 Cost of sales (23,727) (8,666) (32,393) (19,112) Gross profit 237,719 36,929 274,648 172,435 Selling and administrative expenses (160,731) (33,979) (194,710) (121,674) Operating profit 76,988 2,950 79,938 50,761 Profit on disposal of - 1,232 businesses Interest receivable 2,195 1,486 Interest payable and similar charges (7,820) (5,844) Profit on ordinary activities before taxation 74,313 47,635 Taxation on profit on ordinary activities (23,780) (15,243) Profit on ordinary activities after taxation 50,533 32,392 Equity minority interest (74) - Profit for the financial year 50,459 32,392 Equity dividends (4,280) (3,700) Amount transferred to reserves 46,179 28,692 Earnings per share (pence) - basic 42.24p 28.85p Earnings per share (pence) - diluted 41.69p 28.48p Net dividend per share (pence) 3.51p 3.19p UNAUDITED CONSOLIDATED BALANCE SHEET As at 30 September 1999 1999 1998 £'000 £'000 Fixed assets Intangible assets 186,319 - Tangible assets 36,728 31,087 223,047 31,087 Current assets Stocks 2,254 1,965 Debtors 54,214 41,005 Cash at bank and in hand 31,589 36,274 88,057 79,244 Creditors: amounts falling due within one year (85,620) (64,947) Net current assets 2,437 14,297 Total assets less current liabilities 225,484 45,384 Creditors: amounts falling due after more than one year (86,947) (90,305) Deferred maintenance income (63,194) (34,838) Equity minority interest (165) - 75,178 (79,759) Capital and reserves Called up equity share capital 1,219 1,160 Share premium account 152,297 85,373 Merger reserve 40,545 - Profit and loss account (118,883) (166,292) Equity Shareholders' funds 75,178 (79,759) UNAUDITED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES For the year ended 30 September 1999 1999 1998 £'000 £'000 Profit for the financial year 50,459 32,392 Translation of foreign currency net investments and related borrowings (1,034) 1,396 Total recognised gains and losses relating to the year 49,425 33,788 UNAUDITED CONSOLIDATED CASH FLOW STATEMENT For the year ended 30 September 1999 1999 1998 £'000 £'000 Net cash inflow from operating activities 110,897 54,200 Returns on investments and servicing of finance Interest received 2,195 1,486 Interest paid (7,571) (4,651) Issue cost of loans (384) - Interest element of finance lease rental payments (529) (493) Net cash outflow from returns on investments and servicing of finance (6,289) (3,658) Taxation Corporation tax (including ACT) paid (17,509) (11,262) Capital expenditure Payments to acquire tangible fixed assets (10,413) (8,815) Receipts from sales of tangible fixed assets 312 827 Net cash outflow from capital expenditure (10,101) (7,988) Acquisitions and disposals Purchase of subsidiary undertakings: Net cash consideration - current year acquisitions (134,144) (136,387) - prior year acquisitions (835) 498 Sale of businesses - net cash received - 9,803 Net cash outflow from acquisitions and disposals (134,979) 126,086) Equity dividends paid (3,898) (3,326) Cash outflow before financing and management of liquid resources (61,879) (98,120) Management of liquid resources Increase in short term deposits (7,948) - Financing Shares issued 67,406 73,508 Share issue costs (703) - Movement in loan funding (8,350) 51,337 Repayment of capital element of finance leases (417) (299) Net cash inflow from financing 57,936 124,546 (Decrease)/increase in cash in the year (11,891) 26,426 NOTES 1. Geographical analysis 1999 1998 Turnover Operating Turnover Operating profit profit £'000 £'000 £'000 £'000 UK 79,690 38,066 59,780 29,176 France 73,588 19,774 53,230 10,346 Germany 20,685 (1,806) 25,686 816 USA 87,483 20,954 49,777 10,204 261,446 76,988 188,473 50,542 Discontinued - - 3,074 219 operation Acquisitions - UK 19,488 1,540 - - - USA 26,107 1,410 - - 307,041 79,938 191,547 50,761 2. Net Debt Analysis of change in net debt (inclusive of finance leases) At Cash Acquisitions Exchange At 1 Oct flows Movement 30 Sept 1998 1999 £'000 £'000 £'000 £'000 £'000 Net cash at bank and in hand 33,248 (20,333) 8,652 (210) 21,357 Short term deposits - 7,948 - - 7,948 Debt (95,279) 9,151 (911) (521) (87,560) (62,031) (3,234) 7,741 (731) (58,255) Short term deposits are included within cash at bank and in hand in the balance sheet. 3. Taxation The taxation charge for the year comprises: 1999 1998 £'000 £'000 UK taxation 12,106 9,792 Overseas taxation 11,674 5,451 23,780 15,243 4. The unaudited financial information set out above does not constitute the Company's statutory accounts for the year ended 30 September 1999. Statutory accounts to 30 September 1998 have been delivered to the Registrar of Companies and those to 30 September 1999 will be delivered in due course. The Group results for the year ended 30 September 1998 (as amended for the adoption of FRS10 'Goodwill and Intangible Assets') have been extracted from those statutory accounts. The Auditors' Report on the accounts to 30 September 1998 was unqualified and did not contain a statement under Section 237 of the Companies Act 1985. 5. The calculation of basic earnings per share is based on earnings of £50.5m (1998: £32.4m) and on 119,467,663 Ordinary 1p shares (1998: 112,281,193) being the weighted average number of shares in issue during the period. Diluted earnings per share is based on earnings of £50.5m (1998: £32.4m) and on 121,019,395 Ordinary 1p shares (1998: 113,725,070) Ordinary 1p shares, being the adjusted weighted average of shares after dilutive share options. 6. The final dividend of 2.33 pence per share (net) will be paid on 1 March 2000 to shareholders on the register at the close of business on 4 February 2000. 7. Goodwill arising on the acquisitions in the period has been capitalised within Intangible assets in accordance with FRS10 'Goodwill and Intangible Assets'. As permitted by the transitional provisions of FRS10, goodwill arising on acquisitions in previous periods has been eliminated against the profit and loss account reserve and accordingly reserve balances have been restated. We have concluded that goodwill is an inseparable part of the value of businesses acquired this year and should not be amortised as it has an indefinite useful economic life. There will be an annual review of the carrying value of this asset. 8. The Annual Report and Accounts will be posted to shareholders shortly and thereafter copies of the Report and Accounts will be available from the Secretary, The Sage Group plc, Sage House, Benton Park Road, Newcastle upon Tyne, NE7 7LZ.

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